cb module 1

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January 12, 19, 26 and February 2,

2007

Holiday Inn Galleria

ADB Ave. Ortigas.

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Module 1

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Module 1 - Introduction to Accounting

LEARNING OBJECTIVES:

1. Know the definition of accounting and its role in business

2. Distinguish the different types and forms of business organization as well as their characteristics.

3. Learn the different accounting values or elements.

4. Learn the accounting process (functions of accounting). . now t e accounting equation an its signi icance.

6. Know what a business transaction is and its effect on the accounting elements. 7. Learn how to record the business transactions using the double entry method of

bookkeeping

8. Learn how to prepare the trial balance and how to detect errors posting.

9. Learn how to prepare the financial statements of a servicing and trading concern (Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity and Statement of Cash Flows)

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ACCOUNTING

A service activity whose function is to provide

quantitative information, primarily financial in

na ure, a ou econom c en

es, a s n en e

to be useful in making economic decisions. In

general sense, ACCOUNTING is an information

system that provides reports to stakeholders

about economic activities and condition of a

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ROLE OF ACCOUNTING IN BUSINESS:

1. Help owners or management make decisions. 2. Record and analyze business transactions.

3. Communicate financial information to all interested parties

TYPES OF BUSINESSES:

1. Service Business

2. Merchandising Business 3. Manufacturing Business

TYPES OF OWNERSHIP STRUCTURES:

1. Proprietorship 2. Partnership 3. Corporation 4. Cooperative

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Characteristics of the different Forms of Business Organizations:

Proprietorship 1. One owner

2. Unlimited liability for unpaid debts 3. Owner manages the business.

Partnership

1. Two or more owners

2. Unlimited liability for partnership debts 3. There is a managing partner.

Corporation

1. Unlimited owners

2. Limited liability of the stockholders for corporate debts

3. Management is vested in the board of directors (BOD).

Cooperative

1. Unlimited owners

2. Limited liability of the members for the cooperative’s debts.

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BASIC ELEMENTS OF ACCOUNTING:

1. Statement of Financial Position (ie, Balance Sheet) Assets

Liabilities

Owner’s Equity

2. Statement of Comprehensive Income (ie, Income Statement) ncome

Expenses Profit (Loss)

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ACCOUNTING PROCESS:

Identification Recording Classifying Summarizing Interpretation

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ACCOUNTING EQUATION:

or

Assets = Liabilities + Owner’s Equity P500,000 = P200,000 + P300,000

Assets - Liabilities = Owner’s Equity P500,000 - P200,000 = P300,000

Assets Liabilities Owner’s Equity Cash + Accounts Receivable + Supplies + Repair Equipment Owner’s Capital - Drawing + Revenues - Expenses Accounts Payable + Bank Loan = +

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BUSINESS TRANSACTIONS:

Business Transaction is an economic event or condition that directly changes an entity’s financial condition or directly affects its results of operations.

Debit/s (left side) Credit/s (right side) Value/s received = Values given up

Increase in assets are recorded in the left (debit) side of the account while decreases in assets are recorded in the right (credit) side of the account.

Conversely, increases in liabilities and owner’s equity are recorded by Credits while decreases in liabilities and owner’s equity are recorded by Debits.

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BUSINESS TRANSACTIONS

Transactions Debit Credit

Value/s received Value/s given up

1. J. Cruz, invests P200,000 to start an auto repair business.

2. Cruz, buys repair equipment on credit, P100,000.

3. Cruz bou ht Sho Su lies or

Cash Equipment J. Cruz, Capital (ownership right) Accounts Payable (obligation to pay) cash, P62,000.

4. Paid partial on equipment bought on account, P60,000. 5. Cruz received a bank loan for business use, P100,00.

6. Customers pay cash for auto repair rendered, P25,000. 7. Repair services rendered on account, P50,000. op upp es Accounts Payable (reduction of obligation) Cash Cash Accounts Receivable (right to collect) as Cash Bank Loan (promise to pay) Repair Income (services) Repair Income (services)

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BUSINESS TRANSACTIONS

Transactions Debit Credit

Value/s received Value/s given up

8. Paid a month’s rent, P10,000

9. Cruz collects partial from customers’ account, P30,000. 10. Cruz a s the salaries and

Rent Expense (right to occupy) Cash Salar Ex ense Cash Accounts Receivable (reduction to right to collect)

wages of laborers, P15,000. 11. Billed a customer, P6,000; P2,000 was partially received.

12. Supplies purchased, P15,000 and P5,000 was partially received. 13. Shop Supplies used and paid, P18,000.

14. Cruz withdrew P20,000 for personal use. (employees’ service) Cash Accounts Receivable (right to collect) Shop Supplies Supplies Expense (supplies used) J. Cruz, Drawing (ownership right taken)

as Repair Income Cash Accounts Payable (obligation to pay) Cash Cash

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ACCOUNTING EQUATION EXPANDED

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FINANCIAL STATEMENTS:

Financial Statements are accounting reports that provide the financial information of the transactions that have been recorded and summarized. Principal Financial Statements:

1. Statement of Comprehensive Income 2. Statement o Chan es in E uit

3. Statement of Financial Position 4. Statement of Cash Flows

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Module 1 - Recording Business Transactions

Sample Problem 1:

On July 1 of the current year, Paul Brite started a TV repair business.

1. He invested P50,000 in cash to start his business. 2. Purchased for cash shop supplies worth P3,500.

3. Bright bought repair equipment worth P20,000 on credit. 4. Customers paid P12,000 cash for repair services rendered. 5. Brite made a partial payment to A & G Company. P15,000.

6. Customers were billed on account P14,000 for repair services rendered. 7. Rental for the month of July was paid, P6,000.

8. Collected P8,000 from customers as payment of their account. 9. Paid wages of assistant helper for the month of July, P4,000.

10. Bought additional shop supplies costing P7,500. A down payment of P3,000 was made and the balance is payable at the end of the month. 11. Repair services rendered, P9,000. Received P4,500 as partial payment. 12. Repair supplies bought for cash and used for repairs amounted to P6,500. 13. Brite withdrew P10,000 for personal use.

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Required:

a. Record the peso amount under the appropriate heading below on the accounting equation to show the effect of each transaction. Show the balance after the second transaction and there after and their final balances.

Assets = Liabilities + Owner’s Equity Cash + A/R + Supplies + Equipment Accounts Payable P. Brite Capital

+ Revenues - Expenses b. Prepare the following financial Statements.

•Statement of Comprehensive Income for the month ended July 31 of the current year.

•Statement of Changes in Equity for the month ended July 31 of the current year. •Statement of Financial Position as of July 31 of the current year.

•Statement of Cash Flow for the month ended July 31 of the current year.

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DOUBLE-ENTRY ACCOUNTING:

Double-entry accounting is a record keeping in which each business transactions affects at least two accounts.

The double-entry system is used because you are entering the transaction amount twice.

T - ACCOUNT

The T account , so called because of its T shape, is used to show the increase or decrease in an account caused by a transaction.

Top Account Title

Left side Right side Debit Credit (debit) (credit)

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RULES OF DEBIT AND CREDIT:

Rules for Asset Accounts

Asset Accounts Debit Increase + Balance Credit Decrease

-1. Add (increase) on the same side (debit).

2. Subtract (decrease) on the opposite side (credit). 3. The normal balance for an asset is a debit balance.

Rules for Liability and Owner’s Equity Accounts:

Asset Accounts Debit Increase + Balance Credit Decrease

-1. Add (increase) on the same side (credit).

2. Subtract (decrease) on the opposite side (debit). 3. The normal balance for a liability or owner’s equity

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USING THE T - ACCOUNT:

Example Problem 1.

On July 1 of the current year, Paul Brite started a TV repair business. July 1 He invested P50,000 in cash to start his business.

3 Purchased for cash shop supplies worth P3,500.

5 Bright bought from A & G Company repair equipment costing P20,000 on credit. 8 Customers aid P12,000 cash or re air services rendered.

10 Brite made a partial payment to A & G Company, P15,000.

12 Customers were billed on account P14,000 for repair services rendered. 14 Rental for the month of July was paid, P6,000.

17 Collected P8,000 from customers as payment of their account. 19 Paid wages of assistant helper for the month of July, P4,000.

22 Bought additional shop supplies costing P7,500. A down payment of P3,000 was made and the balance is payable at the end of the month.

25 Repair services rendered, P9,000. Received P4,500 as partial payment. 28 Repair supplies bought for cash and used for repairs amounted to P6,500. 31 Brite withdrew P10,000 for personal use.

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Solution Sample Problem 2-a T - ACCOUNTS

Cash Accounts Receivable Repair Equipment

Shop Supplies Accounts Payable

50,000 7/1 7/3 3,500 3,500 7/3 20,000 7/5 20,000 7/5 12,000 7/8 15,000 7/10 15,000 7/10 14,000 7/12 6,000 7/14 8,000 7/17 8,000 7/17 4,000 7/19 7,500 7/22 7/22 4,500 3,000 7/22 4,500 7/25 4,500 7/25 6,500 7/28 10,000 7/31 48,000 74,500 26,500 Bal. 18,500 10,500 Bal. 8,000 Bal. 20,000 24,500 15,000

Paul Brite, Drawing Repair Income

Salary Expense Rent Expense Supplies Expense Paul Brite, Capital

50,000 7/1 7/8 12,000 14,000 7/12 6,000 7/14 4,000 7/19 7/28 6,500 9,000 7/25 10,000 7/31 , . 9,500 Bal. 50,000 Bal. Bal. 10,000 35,000 35,000 Bal. 4,000

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TRIAL BALANCE:

A Trial Balance is a listing of all the balances of the different accounts (assets, liabilities, capital, revenues and expenses), as of a given time.

Purpose of the Trial Balance

. o c ec e accuracy o pos ng recor ng n e accoun s y es ng e equality of the debits and credits.

2. It aids in locating errors posting.

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PAUL BRITE TV REPAIR

Solution Sample Problem 2-b Trial Balance

July 31, 20CY

ACCOUNT TITLE DEBIT CREDIT P 26,500.00 Accounts Receivable 10,500.00 Cash 11,000.00 Shop Supplies P 94,500.00 P 94,500.00 Repair Equipment 20,000.00 P. Brite, Capital Accounts Payable Salary Expense P. Brite, Drawing Rent Expense Supplies Expense P 9,500.00 50,000.00 10,000.00 35,000.00 11,000.00 20,000.00 Repair Income 20,000.00

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BUSINESS TRANSACTION FLOW:

Source Documents

Journal Entries

Ledger Accounts

Trial Balance

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BUSINESS TRANSACTION FLOW:

Source Documents are the different documents, business forms and papers (e.g. invoices, official receipts, vouchers, memoranda, deposit slips, check stubs, cash register tapes, payroll time cards, etc.) evidencing or supporting a

transaction, which serve as the basis for recording in the books of accounts. Books of Accounts are the accounting books where business transactions are recor e . e oo s o accoun s cons s o e an e GENERAL LEDGER.

The General Journal this is a two-column journal, which is called the book of origin entry because this is the first book where the business transactions are recorded.

The General Ledger this is called the book of final entry because this is the book where the business transactions are finally recorded. The ledger serves the same purpose as the T account but more formal and detailed.

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THE GENERAL JOURNAL:

General Journal is an all purpose journal in which all of a business’s transactions may be recorded.

Each entry made in the general journal includes the following information, entered in order.

. e a e o e ransac on.

2. The name of the account debited as well as the amount. 3. The name of the account credited as well as the amount.

4. A posting reference (PR) indicating the account number of the amount. 5. A short explanation of the transaction.

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SAMPLE GENERAL JOURNAL FORM

GENERAL JOURNAL

Date Description PR Debit Credit Date – Month/ Day

Amount Debited

Amount Credited

July 1 Cash 50,000.00

Paul Brite, Capital 50,000.00

To record initial investment.

Account Title Credited

Account Title Debited Explanation

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CHART OF ACCOUNTS:

Chart of Accounts

A listing of all accounts and their account (code) number used for journalizing business transactions.

Sample Chart of Accounts (Service Business)

Balance Sheet Accounts 100 – Assets –

Income Statement Accounts 400 – Income – – 102 – Accounts Receivable 104 – Office Supplies 105 – Prepaid Rent 121 – Delivery Equipment

122 – Accumulated Depreciation – Delivery Equipment 200 – Liabilities

201 – Accounts Payable 202 – Salaries Payable

300 – Owner’s Equity 301 – Brandon Lopez, Capital

302 – Brandon Lopez, Drawing 303 – Income Summary – 500 – Expenses 501 – Salary Expense 502 – Advertising Expense 503 – Communication Expense 504 – Office Supplies Expense 505 – Rent Expense

506 – Insurance Expense 507 – Miscellaneous Expense 508 – Depreciation Expense

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Example Problem 3

Nestor Martel, a Lawyer decided to open a law firm named Martel Law Firm. The partial chart of accounts listed below is used for recording purposes:

Statement of Financial Position Accounts 100 – Assets

101 – Cash

102 – Accounts Receivable 105 – Prepaid Insurance

Statement of Comprehensive Income Accounts 400 – Income

401 – Fees Earned

200 – Expenses 106 – Office Supplies

108 – Furniture and Equipment 200 – Liabilities 201 – Accounts Payable

300 – Owner’s Equity 301 – Nestor Martel, Capital

302 – Nestor Martel, Drawing

– a ary xpense 503 – Advertising Expense 504 – Utilities Expense

509 – Miscellaneous Expense

Required:

a. Journalize the above transactions in the general journal. b. Post each journal entry to the general ledger.

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In December of the current year, the following transactions to place Dec 2 Nestor Martel invested P60,000 cash to start his law practice.

4 A one-year insurance effective December 2 was paid, P6,000.

6 Office furniture worth P15,000 was purchased on account from EZ Furniture Company.

8 Office and computer supplies costing P2,500 was bought for cash.

11 Received from City Bank P60,000 for loan applied to be used in his law practice.

14 Purchased on credit a desktop computer and printer for office use worth , or cro ys ems nc.

16 Received P12,500 cash for legal services rendered to Jose Lopez. 18 Paid P1,000 for Miscellaneous expenses incurred.

20 Received P10,500 cash for legal services rendered to clients.

22 Advertising placed on a local paper for three months effective December 1, was paid, P3,600.

25 Micro Systems, Inc. was partially paid, P45,000. 26 Collected accounts from various clients, P7,500.

27 Light, water and telephone use for the month of December was paid to the property-owner, P1,500 (Utilities expense)

28 The salary of the legal secretary was paid, P5,500. 29 Nestor Martel withdrew P12,000 for personal use. 30 Received P5,000 for legal services rendered.

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SOLUTION FOR SAMPLE PROBLEM 3

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THE GENERAL LEDGER:

General Ledger is a book or file used by a business where accounts are kept on separate pages or cards.

GENERAL LEDGER

Account Name Account Number

Accounts Receivable 102

Date Explanation PR Debit Credit Balance

Debit Credit Dec 24 G2 16,400.00 16,400.00

26 G2 7,500.00 8,900.00

Date of Entry Amount of Debit/Credit Entry

Running Balance after each entry Posting Reference for

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EXAMPLES OF LEDGERS

(Solution Sample Problem 3-b) (refer to MS Excel Sheet 4)

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TRIAL BALANCE:

A trial balance in which debits equals credits is not necessarily error-free. A trial balance may contain errors but still look correct if:

1. No entry was made for a given transactions.

2. A journal entry was not posted to the general ledger. 3. A journal entry was posted twice.

4. Incorrect amounts were used to record a given transaction. 5. Incorrect amounts were recorded for a given transaction.

Transposition Error Example: P864 is written or posted as P684 or P468. Slide Error Example: P684.00 is written or posted as P68.40 or P6.84. Procedure to Correct Errors in Journalizing and Posting:

1. Draw a straight horizontal-line through the error and insert the correct title or amount if the entry is incorrect or the posting is incorrect.

2. Make a correcting entry and post it to correct wrong entry already posted. Correcting Entry is an entry made in the general journal to correct an error

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NATURE AND ACCOUNTING

FOR MERCHANDISING BUSINESS:

Sales – Cost of Goods Sold = Gross Profit

Gross Profit – Marketing and Administrative Expenses = Profit Merchandise are goods bought for resale.

Merchandise Inventory unsold merchandise at the end of a given period. Fees Earned or Service Income – Operating Expenses + Net Income

ACCOUNTING FOR PURCHASES:

Two methods or system for accounting for merchandise purchases 1. Periodic Inventory

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TERMS TO REMEMBER:

Purchase Requisition - written request to order items.

Purchase Order - buyer’s formal order for the merchandise.

Purchase Invoice - document containing the list of terms and quantity, description, unit price, vat and total cost of the items.

Cash or COD 2/10, n/30 2/EOM, n/60 2/10/EOM, n/60 Credit Terms Credit Period

Purchase Discount - discount for the buyer’s early payment.

Discount Period - period of time within w/c the invoice must be paid.

Trade Discount - special discount from the published list prices offered to large buyers.

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TERMS TO REMEMBER:

Transportation In - transportation cost of merchandise purchased.

FOB Shipping Point - buyer is responsible for the freight charges for the merchandise from the supplier’s shipping point.

FOB Destination - seller is responsible for the freight charges for the merchandise until it reaches the buyer’s destination.

Freight Collect - buyer is to pay for the freight when the merchandise arrives. Freight Prepaid - seller pays for the freight at the time of the shipment.

Purchase Returns and Allowances - reduction in purchases due to buyer’s return of merchandise to the seller.

Debit Memorandum - a form used by the buyer to notify the seller of a return of merchandise or allowance for damaged merchandise.

Credit Memorandum - a form used by the seller to notify the buyer that his account has been credited for the returned merchandise or allowance for damaged merchandise.

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RECORDING PURCHASES AND PAYMENT OF ACCOUNT: (Gross Method)

Note: The amount P10,000 for the purchases of merchandise and 12% Vat excluded is used for all the examples.

Example 1: June 1 - Purchased merchandise worth P10,000 for cash per invoice No. 3857.

Entry: June 1 Purchases 10,000 Vat input tax 1,200

Cash 11,200

Note: If the invoice amount is VAT inclusive, divide the amount by 11 to remove the Vat input tax and reduce cash.

Entry: June 1 Purchases 10,000

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Example 2: June 1 - Purchased merchandise with a list price of P10,000 for cash per invoice No. 3857. Trade discount: 10% and 15%.

Entry: June 1 Purchases 7,650 Vat input tax 918

Cash 8,568 Computation: 10,000 x 90% x 85%

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Example 3: June 2 - Purchased merchandise worth P10,000 on account per Credit Invoice No. 1860. Terms: 15 days.

AP 11,200

Note: If the purchase is a non-vat transaction, just remove Vat input tax and reduce Accounts Payable.

Entry: June 2 Purchases 10,000

Accounts Payable 10,000 PaymentJune 17 Accounts Payable 11,200

Cash 11,200

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Example 4: June 2 - Purchased merchandise with a list price of P10,000 on account per Credit Invoice No. 1860. Terms: 2/10, n/30

AP 11,200 PaymentJune 17 Accounts Payable 11,200

, Purchase Discount 200

Note: Discount is computed based on the merchandise cost without Vat. If the invoice is paid after June 12, there will be no cash discount.

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Example 4: If the terms is: 2/EOM, n/60

PaymentJune 30 Accounts Payable 11,200

Cash 11,000 Purchase Discounts 200

Note: If the invoice is paid after June 30, there will be no cash discounts.

Example 4: If the terms is: 2/10/EOM, n/60

PaymentJuly 10 Accounts Payable 11,200

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Example 5: June 4 - Purchased merchandise with a list price of P10,000 on account per Credit Invoice No. 1865. Trade discount is 20% and 10%. Terms: 2/10, n/30

Entry: June 4 Purchases 7,200 Vat Input Tax 864

Accounts Payable 8,064 Computation: 10,000 X 80% X 90%

Cash 7,920 Purchase Discount 144 Discount: 7,200 X 2%

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Example 6: June 6 - Received merchandise with a price of P10,000 on account per Credit Invoice No. 1870. FOB Shipping Point, Freight Prepaid by the seller, P1,000. Terms: 2/10, n/30

Entry: June 6 Purchases 10,000 Transportation In 1,000 Vat Input Tax 1,320

Accounts Payable 12,320

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Example 7: June 6 - Received merchandise with a price of P10,000 on account per Credit Invoice No. 1870. FOB Shipping Point, Freight Collect by the seller, P1,000. Terms: 2/EOM, n/60

Entry: June 6 Purchases 10,000 Vat Input Tax 1,200

Accounts Payable 11,200 Transportation In 1,000

VAT Input Tax 120

Cash 1,120

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Example 8: June 8 - Received merchandise with a price of P10,000 on account per Credit Invoice No. 1880. FOB Destination, Freight Prepaid, P1,000.

Terms: 2/10, n/30

Entry: June 8 Purchases 10,000 Vat Input Tax 1,200

Accounts Payable 11,200

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Example 9: June 8

- Example 9: June 8 - Received merReceived merchandise with a pricchandise with a price of P10,000 on acce of P10,000 on accountount

per Credit

per Credit Invoice No. 1890. FOB DestinatiInvoice No. 1890. FOB Destination, Fron, Freight Collect, eight Collect, P1,000.P1,000.

Terms: 2/EOM, n/60

Entry:

Entry: June 8June 8 PurchasesPurchases 10,00010,000

V Vaat t IInnppuut t TTaaxx 11,,220000 Accounts Payable Accounts Payable 10,08010,080 C Caasshh 11,,112200 Payment

PaymentJuly 10July 10 Accounts PayableAccounts Payable 10,08010,080

C

Caasshh 99,,888800

Purchase

Purchase DiscountsDiscounts 200200

Note: Fr

Note: Freight cost paid eight cost paid is deducted fris deducted from accounts payable and om accounts payable and the discount isthe discount is

computed from the invoice cost of the merchandise.

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Module 1

-Module 1 -Recording BusinRecording Business Transaess Transactionsctions

Example 10: June 2

- Example 10: June 2 - Purchased Purchased merchandise merchandise with a price of with a price of P10,000 onP10,000 on

account per Credit Invoice No.

account per Credit Invoice No. 1900. T1900. Terms: 2/10, n/30erms: 2/10, n/30..

June 4

- June 4 - Received crReceived credit memorandum fredit memorandum from the seller om the seller for thefor the

return of merchandise, P2,000.

Entry:

V

Vaat t IInnppuut t TTaaxx 11,,220000

Accounts Payable

Accounts Payable 111,2001,200

Return

Return June 4June 4 Accounts PayableAccounts Payable 2,2402,240

V

Vaat t IInnppuut t TTaaxx 224400

Purchase

Purchase Returns and AllReturns and Allowances owances 2,0002,000

Payment June 12

Payment June 12 Accounts PayableAccounts Payable 8,9608,960

C

Caasshh 88,,880000

Purchase

Purchase DiscountsDiscounts 160160

Note: Discount is computed after returns and allowances are deducted from

Note: Discount is computed after returns and allowances are deducted from the invoice cost of thethe invoice cost of the

merchandise. When partial payments are made on a particular invoice

merchandise. When partial payments are made on a particular invoice within the discountwithin the discount

period, cash discount is not yet allowed. Cash discount is allowed only if the invoice c

period, cash discount is not yet allowed. Cash discount is allowed only if the invoice cost ofost of

the merchandise net of returns and allowances are paid in full within

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RECORDING PURCHASES AND PAYMENT OF ACCOUNT:

(Net Method)

Using Example 1

Using Example 10 transaction without m0 transaction without merchandise rerchandise returns:eturns:

Entry:

V Vaat t IInnppuut t TTaaxx 11,,220000 Accounts Payable Accounts Payable 111,0001,000 e ettuurrnn uunne e 1122 ccccoouunntts s PPaa aabbllee 1111,,000000 C Caasshh 1111,,000000

Note: If paid afte

Note: If paid after the discount period, r the discount period, purchase purchase Discount Loss is debited.Discount Loss is debited.

Payment June 30

Payment June 30 Accounts PayableAccounts Payable 111,0001,000

Purchase

Purchase Discount LostDiscount Lost 200200

C

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RECORDING PURCHASES AND PAYMENT OF ACCOUNT: (Net Method)

Using Example 10 transaction with merchandise returns: Entry: June 2 Purchases 9,800

Vat Input Tax 1,200

Accounts Payable 11,000 eturn une 4 ccounts Pa able 2,200

Vat Input Tax 240 Purchase Returns and Allowances 1,960 Payment June 12 Accounts Payable 8,800

Cash 8,800

Note: If paid after the discount period, purchase Discount Loss is debited. Payment June 30 Accounts Payable 8,800

Purchase Discount Lost 160

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ACCOUNTING FOR SALES: ACCOUNTING FOR SALES:

Credit Memo is a form used by the seller to notify the buyer that his account is credited (the amount is reduced) for the return of detective merchandise or allowance for damaged merchandise.

Sales Discount is a discount granted by the seller for early collection on a credit sale.

a es e urns an owances are re uc on n a es, resu ng rom merchandise being returned by the customer.

Transportation Out represents transportation costs of merchandise sold and shouldered by the business.

Freight Out this represents the cost of transporting the merchandise sold from the seller’s place to the buyer’s place which is to be shouldered by the seller (business).

(54)

RECORDING SALES AND COLLECTION OF ACCOUNT:

Note: The amount P15,000 for the purchases of merchandise and 12% Vat excluded is used for all the examples.

Example 1: June 2 - Sold merchandise worth P15,000 for cash per invoice No. 1001.

Entry: June 2 Cash 16,800

Sales 15,000 Vat output tax 1,800

Note: If the sale is a non-vat transaction, just remove Vat Output Tax and reduce cash.

Entry: June 2 Cash 15,000

(55)

Example 2: June 3 - Sold merchandise worth P15,000 for cash per Credit invoice No. 101. Terms: 15 days

Entry: June 3 Accounts Receivable 16,800

Sales 15,000 Vat Output Tax 1,800 Payment June 18 Cash 16,800

ccounts Receiva e 16,800

(56)

Example 3: June 4 - Sold merchandise worth P15,000 per credit invoice No. 102. Terms: 2/10, n/30.

Note: If the sale is a non-vat transaction, just remove Vat output tax and reduce .

Sales 15,000 Vat Output Tax 1,800 PaymentJune 14 Cash 16,500

Sales Discount 300

Accounts Receivable 16,800

(57)

Example 4: June 5 - Sold merchandise worth P15,000 on account per Credit Invoice No. 103. FOB Shipping Point freight Collect, P1,000. Terms:

2/10, n/30

, Sales Discount 300

Note: The entries are the same as Example 3 because transportation costs are shouldered by the customer and will be paid by the customer.

(58)

Example 5: June 6 - Sold merchandise worth P15,000 per Credit Invoice No. 104. FOB Shipping Point, Freight Prepaid, P1,000. Terms: 2/10, n/30

Sales 15,000 Vat output tax 1,800 Cash 1,000 aymen une as ,

Sales Discount 300

(59)

Example 6: June 7 - Sold merchandise with a price of P15,000 per Credit Invoice No. 105. FOB Destination, Freight Collect, P1,000. Terms: 2/10,

n/30

Entry: June 9 Accounts Receivable 15,800 Transportation Out 1,000

Sales 15,000 Vat output tax 1,800 PaymentJune 19 Cash 15,500

Sales Discount 300

Note: Transportation costs paid by the customer is deducted to the customer’s account.

(60)

Example 7: June 8 - Sold merchandise worth P15,000 per Credit Invoice No. 106. FOB Destination, Freight Collect, P1,000. Terms: 2/10, n/30.

Merchandise was received on June 10.

Entry: June 10 Accounts Receivable 16,800 Transportation Out 1,000

, PaymentJune 19 Cash 16,500

Sales Discount 300

(61)

Example 8: June 9 - Sold merchandise worth P15,000 per Credit Invoice No. 107. Terms: 2/10, n/30.

June 10 - Received merchandise returns from the customer P2,000 and issued credit memorandum No. 001 (Assume Vat Excluded).

Sales 15,000 Vat output tax 1,800 Return: June 10 Sales Returns and Allow 2,000

Vat Output Tax 240

Accounts Receivable 2,240 PaymentJune 19 Cash 14,300

Sales Discount 260

(62)

SALES AND RELATED ACCOUNTS: • Sales

• Sales Returns and Allowances • Sales Discounts

• Freight Out

PURCHASES AND RELATED ACCOUNTS: • Purchases

• Purchase Returns and Allowances • Purchase Discounts

• Freight In

• Merchandise Inventory COST OF GOODS SOLD: • Merchandise Inventory • Purchases

cb module 1

January 12, 19, 26 and February 2,

January 12, 19, 26 and February 2,

2007

2007

Holiday Inn Galleria

Holiday Inn Galleria

ADB Ave. Ortigas.

Module 1

LEARNING OBJECTIVES:

ACCOUNTING

A service activity whose function is to provide

quantitative information, primarily financial in

na ure, a ou econom c en

es, a s n en e

to be useful in making economic decisions. In

general sense, ACCOUNTING is an information

system that provides reports to stakeholders

about economic activities and condition of a

ROLE OF ACCOUNTING IN BUSINESS:

TYPES OF BUSINESSES:

TYPES OF OWNERSHIP STRUCTURES:

Characteristics of the different Forms of Business Organizations:

Characteristics of the different Forms of Business Organizations:

BASIC ELEMENTS OF ACCOUNTING:

ACCOUNTING PROCESS:

ACCOUNTING EQUATION:

BUSINESS TRANSACTIONS:

FINANCIAL STATEMENTS:

DOUBLE-ENTRY ACCOUNTING:

T - ACCOUNT

RULES OF DEBIT AND CREDIT:

USING THE T - ACCOUNT:

TRIAL BALANCE:

BUSINESS TRANSACTION FLOW:

BUSINESS TRANSACTION FLOW:

THE GENERAL JOURNAL:

CHART OF ACCOUNTS:

THE GENERAL LEDGER:

TRIAL BALANCE:

NATURE AND ACCOUNTING

FOR MERCHANDISING BUSINESS:

ACCOUNTING FOR PURCHASES:

TERMS TO REMEMBER:

TERMS TO REMEMBER:

Net Sales

x

Less: Cost of Goods Sold:

Merchandise Inventory, beginning.

x

Add:

Purchases

x

Freight-in

x

Purchases discounts

(x)

Purchases ret and allow

(x)

Net Purchases

x

Total goods available for sale

x

Less: Merchandise Inventory, ending

x

Cost

of

goods

sold

x